Statement by Microsoft abandoning buyout | Statement by Yahoo

Microsoft last night walked away from a three month, $47.5 billion fight to seize its larger internet rival Yahoo! in a move that will force the online search engine to find an alternative path to increase its stock price by at least 70 per cent.

In a meeting in Seattle on Saturday evening, Steve Ballmer, chief executive of Microsoft, sought to persuade Jerry Yang, co-founder of Yahoo!, to yield to the computer giant by raising his offer from $31 a share to $33. Mr Yang refused to accept the increased valuation, insisting that Yahoo! was worth at least $38 each. At $33, the offer valued Yahoo! at $47.5 billion.

Following the rejection, Mr Ballmer released a letter sent to Mr Yang stating that Microsoft had decided to walk away from Yahoo!

Mr Ballmer said: "We believe the economics demanded by Yahoo! do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal.”

In February, Microsoft effectively launched a hostile takeover approach for Yahoo! It said it would pay $31 for every share held by Yahoo! investors, valuing the online search engine at a 61 per cent premium to the share price the day before the offer was made public. The offer price was to have been met in cash and Microsoft shares equally. It also threatened to launch a proxy fight against Yahoo!, if it did not agree to the terms, which could have seen most of the Yahoo! board sacked.

Microsoft wanted to buy Yahoo! to grab a bigger share of the online advertising market which is worth $40 billion a year, and set to double within two years. A combination of Yahoo! and Microsoft would have helped the computer giant compete more effectively with the world’s biggest internet company – Google.

Yahoo! quickly rejected the February approach, claiming that the valuation was too low and immediately started discussions with other media and technology companies to block any approach by Microsoft.

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